The Fair Tax Mark is worthy of constructive debate

I said last weekend that the launch of the new Fair Tax Mark may come to be seen as a turning point in the tax debate, and that the initiative deserves to be considered on its merits. There has been a good deal of debate (mostly on Twitter and blogs) since then, and I would encourage tax professionals who have not yet done so to take a close look at the FTM website and engage constructively in the debate. I’ll look at some of the questions that have been raised shortly.

This week both the Institute of Chartered Accountants in England and Wales (ICAEW) and the top 10 accountancy firm Baker Tilly have given a cautious welcome to the new initiative. They are right to do so, and this is a significant development that could encourage many owners of SME companies to apply for accreditation very soon.

Baker Tilly said the FTM would take a while to establish itself:

“Nevertheless, we welcome this as a promising step towards greater public transparency and accountability in business taxes.”

ICAEW’s Tax Faculty team said the FTM was “an initiative we are right behind”. The public would benefit from having a simple way to tell if a company was paying a fair amount of tax, it said.

That announcement, viewed almost 1,900 times so far, drew nine critical responses (including one from the head of tax at the Institute of Directors) in about 48 hours.

During the next 24 hours or so there were eight comments broadly in favour (if we exclude FTM founder Richard Murphy’s contributions).

This doesn’t prove anything – it’s only a very small sample. But the vast majority of readers have not been moved to comment at all, and the comments that have been made suggest a wide range of opinion.

There is, after all, a wide range of opinion among tax professionals. I suspect that Stuart Jones’s comment that “some [SME clients] would dearly love to show their customers that they are paying the ‘fair’ amount of tax” is shared by many of the smaller firms of accountants.

In a blog on aggressive tax avoidance (posted in June 2012 and referenced by Accountancy Age editor Kevin Reed yesterday), ICAEW CEO Michael Izza said:

“As ICAEW chartered accountants, our code of ethics, which is the foundation for how we behave, is clear that we must do nothing to bring our profession into disrepute. Any members involved in aggressive tax planning through the sorts of schemes highlighted by The Times [in 2012] are doing exactly that, and are risking the reputation of the vast majority of our members who provide valuable and honest support to businesses and individuals and who want nothing to do with such schemes.”

Izza was right and the general anti-abuse rule, enacted last year to counter abusive schemes, will help to restore the reputation of the thousands of accountants and tax advisers who have nothing to do with such schemes.

Tax avoidance by multinationals, often via tax havens, is a more difficult issue. Campaigners say that the OECD’s project on “base erosion and profit shifting” will not be enough to tackle the problem, and that in any case the process will take too long, and action is needed now.

Companies can and do make big choices in managing their tax affairs, and some very large multinationals seem to have done their utmost to exploit the separate entity principle behind the outdated international tax system.

Again, reputation is a real issue. Businesses that do not use tax havens, for example, will want to set themselves apart from those that do. They are seeking a more level playing field, something that can only happen under the current system if those multinationals engaged in aggressive tax planning rein in their activities.

The FTM team intends to develop criteria for assessing multinationals at a later date. For now, the focus will be on businesses trading only in the UK.

The FTM pioneers include Ben Reid, chief executive of Midcounties Co-operative, a £1bn turnover company, who sees the FTM as

“a natural extension of our long-standing commitment to put something back into the communities in which we operate and trade”.

The company’s new Tax Charter differentiates between legitimate tax planning (or “mitigation”) and aggressive tax avoidance. This approach is something most tax advisers would want to support, I would have thought.

Last weekend I asked: “What is the ‘right amount’ of tax, and who decides?” This is one of many questions raised this week, and Richard Murphy and others have given some detailed responses. More on that soon.

2 thoughts on “The Fair Tax Mark is worthy of constructive debate

  1. As much as I am critical of the Fair Tax Mark, I don’t think that the concept is necessarily a bad idea. Having said that, I don’t think that it is necessarily a good idea either. A lot depends on execution and whether the method and assessment procedures can be seen to be sufficiently objective.

    My principal concern is that the marketing appears to claim to do something that the method doesn’t even attempt to do – which is test that the business pays a fair amount of tax.

    Now, if FTM were to rename and market itself as a Corporation Tax Transparency Mark, I think that problem lessens significantly. I’d still want to see an awareness piece on their website around unincorporated businesses to ensure that smaller businesses aren’t discriminated against by consumers, but the name change would go a long way to achieving that.

    Much harder to do is to actually assess whether the business pays a fair amount of tax. That is something that would require a lot of work to create and execute properly. Commercially, I’m not sure it would work, but I think if you’re aspiring to concepts such as “fairness” you can’t afford to compromise crucial principles.

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